In May of this year, the total amount of land acquired by the top 100 real estate companies in mainland China decreased by 74% compared to the previous year, with the decrease widening by 26% month-on-month. Industry experts have stated that there is an excessive inventory in the Chinese property market, advising potential homebuyers to wait a bit longer.
According to the recent report released by the China Real Estate Research Institute, from January to May this year, the total land acquisition amount of the top 100 real estate companies was 314.6 billion yuan, a decrease of 26.7% compared to the same period last year, with the decline expanding by 17.2 percentage points compared to January to April. In May, the monthly land acquisition amount of real estate companies dropped from 633 billion yuan in April to 296 billion yuan. The land acquisition amount of the top 100 real estate companies in May decreased by 74% year-on-year, with the decline widening by 26% month-on-month.
The reduction in land acquisition by real estate companies has correspondingly led to a decrease in land supply by local authorities. From January to May, the supply of various types of land in different regions decreased by 24.2% compared to the previous year, with residential land supply totaling 88 million square meters, a 38.6% decrease year-on-year.
Behind the decrease in land acquisition by real estate companies lies the continuous sluggishness of the Chinese property market, characterized by large inventory levels and long turnover cycles.
A report released by the E-House China R&D Institute on May 27 revealed that as of April, out of the 100 monitored cities nationwide, 42 cities had a turnover cycle exceeding 36 months, 37 cities had turnover cycles ranging between 18 and 36 months, and 21 cities had turnover cycles of less than 18 months.
Overall, the average turnover cycle for new residential properties in 100 Chinese cities stands at 26.5 months, meaning that at the current sales pace, it would take approximately 26.5 months to clear the existing inventory. The market generally considers a turnover cycle of 12 to 14 months as the threshold for a balanced supply and demand in the real estate sector.
Some opinions suggest that weak market demand is the key issue affecting the current Chinese real estate market.
The E-House China R&D Institute believes that the high inventory levels and long turnover cycles in various regions are primarily due to weak demand absorption capacity. The Institute mentioned that the high inventory pressure is mainly a result of the inadequate consumption capacity rather than an excessive buildup of inventory over recent years due to the cooling of the land market in various regions.
A research report by Ping An Securities on May 27 also suggested that although local authorities’ land supply restrictions have had some effect, the core issue still lies on the demand side. Data showed that in 2022 and 2023, the land supply area for cities with high inventory levels decreased significantly, yet the inventory remains high, indicating that the key to reducing inventory lies in restoring demand.
Looking at the sales data, it is evident that the journey to clear the Chinese real estate inventory is far from over. According to the sales data released by the Ke Research Institute on May 31, in May, the top 100 Chinese real estate companies achieved a sales transaction amount of 322.41 billion yuan, a 33.6% decrease compared to the previous year, maintaining a historically low level of performance.
In terms of cumulative performance, from January to May, the sales transaction amount of the top 100 real estate companies reached 1,413.37 billion yuan, a 44.3% decline compared to the same period last year.
Additionally, the funding situation in the Chinese real estate sector has not shown signs of improvement and remains constrained.
According to the official Weibo account of the China Real Estate Research Institute on June 5, in May 2024, the total amount of real estate corporate bond financing was 216.6 billion yuan, a 52.9% decrease year-on-year, and a 59.9% decrease month-on-month.
To stimulate the persistently sluggish property market, China has introduced various stimulus measures from the central government to local authorities. These measures range from reducing down payments, interest rates, and property purchase thresholds in cities such as Shanghai, Guangzhou, and third- and fourth-tier cities.
However, according to Shao Yu, the former chief economist at Orient Securities, the current issue is not the lack of leverage, as leverage implies debt. Rather, the lack lies more in monthly mortgage payments, meaning cash flow. In a scenario of stable income growth expectations, more people may be willing to take on additional leverage.
Shao Yu stated that the financial attributes of the real estate market have not fully returned. He believes that the real estate market is currently oversupplied, and residents have relatively high leverage, advising those considering buying property to wait, especially in non-core areas where holding off could be beneficial.